Asia Stocks recap: March of the central banks

June 2, 2014, 7:39 PM ET

Reuters

Welcome to the Asia Stocks live blog, a running account of what the region’s share markets are doing, along with other news. Today, the agenda includes a final read on HSBC’s China manufacturing report, and central-bank rate decisions from both Australia and India.

While today features not one, but two rate calls from major Asian central banks, neither is expected to bring any change to current policy, though for different reasons.

First there’s the Reserve Bank of Australia, slated to hand down its decision at 12:30 a.m. U.S. Eastern time. According to Rivkin, markets have priced in a 98% chance that the RBA will again stand pat, with the central bank having forecast “a period of stability in interest rates” following its last several meetings.

Meanwhile, the Reserve Bank of India is also predicted to keep rates on hold, though with slightly less certainty. The current meeting is the first since the election, and HSBC’s Asia research co-chief Frederic Neumann sees the RBIA as likely to wait to see the new budget, as well as weather forecasts that could point to a weak monsoon season due to El Niño.

“Things remain tricky for the RBI. The economy’s growth performance isn’t what it used to be. True, improved sentiment may unlock pent-up spending by households and firms. But underlying constraints remain: cautious banks, weighed down by shaky assets, infrastructure projects stuck on the drawing board, lack of power, and above all, entrepreneurial spirits tangled up in red tape,” writes Neumann.

You know the drill: When the U.S. gets good data, investors often sell Treasurys. When Treasurys move lower, their yields rise, and so the dollar usually rises too. When the dollar rises (and the yen falls), Japanese stocks tend to move higher.

And so it is today — Strong U.S. and Chinese manufacturing numbers have boosted the greenback at the yen’s expense, with the dollar currently buying ¥102.45 against ¥102.04 at yesterday’s Tokyo stock close.

Thus, the Nikkei Average is up 0.9% (though off its opening 1% gain) at 15,065, surpassing the 15,000 level for the first time since early April. This, after a 2.1% rally yesterday. Likewise, the Topix is up 0.8% in early moves.

Foreign buyers are playing their part in driving up the market, with Dow Jones Newswires reporting the highest net purchases since April 2 by offshore accounts this morning at the six foreign brokerages it monitors.

As would be expected with the weaker yen, tech and industrial exporters are among the leading gainers, with Hitachi up 1.4%, Mitsubishi Electric up 2%, Kyocera up 1.7%, and Panasonic up 1.2%.

The top financials are also enjoying robust buying, with Mitsubishi UFJ up 1.5%, Sumitomo Mitsui Financial Group up 1.9%, Nomura up 1.8%, and Daiwa up 2.3%.

Autos are also advancing, though taking smaller steps: Toyota is up 0.8%, Honda is up 0.6%, Nissan is up 0.9%, and Mazda is up 1.6%.

Shares of Nintendo are outperforming the wider market, rising 1.3% after announcing banner first-weekend sales for its Mario Kart 8 videogame, making the release its fastest-selling title ever for the Wii U console.

Japan Airlines is lagging the rally, rising just 0.2% after its chairman said the carrier is considering a new order for short-haul airplanes.

And back in the tech sector, Renesas is sporting a 2.2% improvement after unveiling a new USB power-delivery controller.

Australian bears have eaten all of the market’s opening gains and then some, with the ASX 200 currently down 0.3%, to pare yesterday’s 0.5% advance.

The moves come ahead of key risk events for Aussie stocks, including domestic retail-sales data, Chinese manufacturing data, and a rate decision from the central bank. (OK, maybe that last one isn’t really a “risk” event, given the likelihood of no action from the Reserve Bank — see previous post in today’s blog.)

The big banks are weaker (CBA down 0.4%, Westpac down 0.3%), and the retailers are also lower ahead of the sales data (Harvey Norman down 1.4%, and Myer down 1.6%, though David Jones is managing a 0.1% rise).

And shares of Telstra are down 0.4% after Credit Suisse cut its rating on the stock to neutral from outperform, citing new mobile-phone pricing plans at its Singapore-owned rival Optus.

Australia’s retail sales held to their growth path in April, much as expected, chalking up a seasonally adjusted 0.2% increase during April.

The result was in line with the average forecast from a Dow Jones Newswires survey of economists, representing a mild acceleration from March’s 0.1% gain.

The Australian Bureau of Statistics said restaurants and takeaway food services showed the most improvement, followed closely by household goods. On the other hand, department-store sales were more or less flat from the previous month.

Meanwhile, the retail stocks profited not from the numbers, with many of the big players still trading in negative territory. Among them, Harvey Norman is down 1.3%, Myer is down 1.8%, and David Jones is flat.

In better macroeconomic news, a separate data report showed the current-account deficit narrowing sharply in the first quarter, thanks to an increase for mining exports.

The deficit eased to a seasonally adjusted 5.67 billion Australian dollars ($5.25 billion), compared to expectations for a A$7 billion gap, according to Dow Jones Newswires. The fourth-quarter deficit was A$11.71 billion, according to revised figures.

The data helped push the Australian dollar up to 92.54 U.S. cents from about 92.40 cents ahead of the data.

It’s been mostly good news on the Chinese manufacturing front so far this month, but the final read on HSBC’s Purchasing Managers’ Index is a bit of a bummer.

HSBC and data partner Markit revised down their preliminary “flash” PMI result to 49.4 from 49.7, though the print still marked a solid improvement from April’s 48.1.

Nonetheless, the headline number remained below the 50 level dividing growth from contraction, with HSBC summing up the result as meaning “operating conditions in China’s manufacturing sector deteriorated only marginally in May.”

Commenting on some of the report’s subindexes, HSBC chief China economist Hongbin Qu said: “New orders stabilized, while new export orders recorded an impressive expansion of 53.2. But growth momentum looked weaker than suggested in the flash reading, as the stocks of finished goods index was revised up to 49.8 from 48.8 in the flash reading.”

“The final PMI reading for May confirmed that the economy is stabilizing, but it is too early to say that it has bottomed out, particularly in light of a weaker property sector,” Qu said.

Market reaction was broadly negative. The Hang Seng Index, which began the session 1.1% higher, trimmed that gain to 0.3%. The Shanghai Composite saw less of a hit, easing to a 0.3% advance from a 0.4% rise pre-data.

And the Australian dollar — which tends to react from news out of Australia’s top trading partner — fell to 92.38 U.S. cents from 92.54 U.S. cents.

Hong Kong stocks are advancing on the first trading day in June, with the Hang Seng Index up 0.6% early, though the index is off its opening gain of 1.1% after HSBC’s monthly report on Chinese manufacturing came in weaker than a preliminary version of the data (see earlier post on today’s blog).

The Shanghai Composite Index is also off to a good start, rising 0.3%, with both the Shanghai and Hong Kong markets returning from a three-day weekend to mark the Dragon Boat Festival.

The great family of Samsung stocks are trading mostly higher in South Korea markets today after Samsung Everland, the de-facto holding company of Samsung Group, announced it would seek an initial public offering by the first quarter of next year.

In a statement out earlier today, Samsung Everland said the purpose of its IPO would be to raise capital and expand overseas, adding it would select bookrunners sometime this month.

Speculation has been rife about the future of the family enterprise since Lee Kun-hee, chairman of Samsung Electronics, was hospitalized for a heart condition last month. Analysts expect the move to list Samsung Everland would speed up the transfer of control of the group from Lee to his children, including his son Jay Y. Lee and daughters Lee Boo-jin and Lee Seo-hyun, who all hold major stakes in Everland.

Shares in members of the Samsung chaebol included some decent rallies, with Samsung C& T Corp. up 4.5% and Samsung SDI up 3.6% in Seoul afternoon trade. Flagship Samsung Electronics also outperformed, rising 0.8% against a flat performance for the benchmark Kospi.

Once again, the Reserve Bank of Australia met expectations by holding its policy cash rate at a record low 2.5% and issuing a statement with few changes from last month’s missive.

Most importantly, RBA Gov. Glenn Stevens kept the language “the most prudent course is likely to be a period of stability in interest rates” in today’s statement, with the wording identical to his May 6 post-meeting language.

Among the few items that were new this month:

1) A housing recovery: “Moderate growth has been occurring in consumer demand, and a strong expansion in housing construction is now under way.”

2) While the statement’s comment on the Australian dollar being high “by historical standards” was repeated, this time Stevens added a rationale, saying the Aussie was high “particularly given the further decline in commodity prices.”

3) Exports rebounding … for now: Stevens partly attributes the improving economy to “very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters.”

Meanwhile, the market reaction is best summarized by the word “meh.” For one thing, the Australian dollar seemed unsure what to make of the no-surprise decision: It was at 92.54 U.S. cents a minute ahead of the announcement, then rose to near 92.65 cents in seconds, then fell to 92.44 cents, then moved back up and is currently at 92.55 cents — more or less a wash.

The stock market also ignored the RBA, with the ASX 200 holding to its 0.4% loss.

The Reserve Bank of India’s policy decision is out, with rates on hold as expected, but with the central bank also making a tweak to improve liquidity.

In terms of the headline moves, the key repurchase rate stayed at 8% — where it has been since January — while the cash reserve ratio remained at 4%.

What did change was the statutory liquidity ratio, the required level of securities which banks must keep at the central bank. The RBI cut the ratio by a half point to 22.5% of deposits, effective June 14, in a move that could make credit more available. It also made some adjustments to the RBI’s export credit refinance facility.

In his policy statement, RBI Gov. Raghuram Rajan repeated the central bank’s commitment to curbing inflation, targeting 8% consumer inflation by January and 6% by the start of 2016.

But Rajan also sounded a slightly dovish note on the outlook, saying: “If the economy stays on this course, further policy tightening will not be warranted. On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance.”

The rupee gained a little bit of ground following the decision, with the dollar easing to 59.15 rupees from 59.19 rupees just ahead of the announcement.

Stocks, however, fared slightly worse, with the Sensex moving from a 0.2% gain to a 0.2% loss before moving back to the flatline about 30 minutes after the decision. The Nifty was down 0.1%, having sat on a 0.1% gain before the RBI’s move.

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